Nearshore Americas

Capgemini Chases Top 5 Ranking in the US

Paul Hermelin, chief executive of Capgemini, is planning a series of acquisitions to strengthen the French IT services company’s position in the US market.
Capgemini is the largest European IT services company by sales, but Mr Hermelin said he would like also to see it among the top five US technology services providers, alongside competitors such as Accenture and IBM.
“We are number 19 in the US IT services market and … we must be in the top five to be credible,” Mr Hermelin told the Financial Times. He added that he would also consider purchases in Asia and in new technologies.
Finding new areas of growth are essential for the group. On Thursday, it disappointed investors by revealing a 7.3 per cent fall in third-quarter sales to $2.8bn, below market expectations. The company lowered sales forecasts for the year, now expecting a 5 per cent fall in sales, compared with earlier estimates for a 3 to 4 per cent fall.
Shares in Capgemini, which have gained more than 15 per cent over the past year, fell 4.2 per cent to €31.13 on Thursday.
Mr Hermelin said the market had been softer than expected in September and October, with many companies still reluctant to spend money on large IT projects. This week competitor Logica was also forced to lower guidance for the year.
Mr Hermelin is hoping to return the company to growth by the end of 2010 through acquisitions and investment into five key areas including smart metering, software testing, application development, business information management, and data management. These are expected to add €800m to revenues next year.
The company has maintained its target for a 7 per cent operating margin for the year, in part thanks to a €220m restructuring programme and a pay freeze since January. Mr Hermelin first told the FT of plans for a US spending spree in early 2008, but the economic downturn put them on hold. Capgemini has a war chest of €576m cash to spend on acquisitions, but was reluctant to use this during the crisis.
“Twelve months ago I didn’t want to stretch the balance sheet. There was so much concern about conserving cash. Now it is the end of the storm,” Mr Hermelin said.
However, he said the company was reluctant to pay “crazy” valuations such as the $3.9bn that Dell paid to buy Perot Systems. “I don’t imagine a large deal, but something more focused,” Mr Hermelin said.
Executives at Capgemini are still haunted by its $11bn acquisition of Ernst & Young’s consulting business in 2000, which plunged the company into turmoil for several years. The company’s biggest deal since was the $1.2bn acquisition of Kanbay International in India, which has formed the basis of Capgemini’s operations on the subcontinent.
However, the company is now in an increasingly expansive mood. This month it announced plans to create a new business information management unit in Bangalore. It will be a pivotal move for the company, increasing its workforce in India to beyond 21,000 people, more than its headcount in France of about 20,000.

Sign up for our Nearshore Americas newsletter:

Kirk Laughlin

Kirk Laughlin is an award-winning editor and subject expert in information technology and offshore BPO/ contact center strategies.

Add comment